Vivek College of Management and Technology, Bijnor

Second Sessional MBA II Sem

Financial Management
Time: 1hr
Short answer type: ( 2*5) MM:30

1. Calculate the present value of annuity of Rs. 5000 received annually for four years when discounting
factor is 10%.
2. Define the concept of Time Value of Money.
3. What is Optimum Capital Structure?
4. What is pay- back period?
5. What does NI approach states?

Case Study: (15)

6. Two firms A & B are identical in all respects except that the firm A has 10% Rs 500000 Debentures.
Both the firms have the same earnings before interest and taxes amounting to Rs. 100000. The
equity capitalisation rate of firm A is 16% while that of firm B is 12.5%.

OR

7. Agarwal limited has a paid up share capital of Rs. 10, 00,000 divided into equity shares of Rs. 10
each. It requires further funds amounting to Rs. 500000 to finance its expansion program. Following
are the alternatives under consideration:

Issue of 10% debentures of Rs.500000.

Issue of 50000, 13% Preference Shares of Rs. 10 each.
Issue of 50000 equity shares of Rs. 10 each.

The companys earnings before interest and taxes are Rs. 400000 p.a. You are required to calculate
the effect of each of the above alternatives on EPS presuming.
EBIT continues to be same after expansion
EBIT increases by Rs. 100000.

Assume tax rate as 50%.

Long Answer type: (any 1 *5)

8. A ltd. Issued 1000, 10% preference shares of Rs. 100 each, cost of issue is Rs. 2 per share. Calculate
the cost of preference capital if these shares are issued :
@ par
@ 5% premium
@ 2% discount
9. Explain the EBIT-EPS approach for determining capital structure of a company.

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